I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Is President Obama Really A Socialist? Let's Analyze Obamanomics

President Obama says that income taxes must be raised on the rich because they don’t pay their fair share. The indisputable facts from official government sources say otherwise.

The CBO reports based on official IRS data that in 2009 the top 1% of income earners paid 39% of all federal income taxes, three times their share of income at 13%. Yet, the middle 20% of income earners, the true middle class, paid just 2.7% of total federal income taxes on net that year, while earning 15% of income. That means the top 1% paid almost 15 times as much in federal income taxes as the entire middle 20%, even though the middle 20% earned more income.

Moreover, the official data, as reported by CBO and the IRS, show that the bottom 40% of income earners, instead of paying some income taxes to support the federal government, were paid cash by the IRS equal to 10% of federal income taxes as a group on net.

Any normal person would say that such an income tax system is more than fair, or maybe that “the rich” pay more than their fair share. So why does President Obama keep saying that the rich do not pay their fair share? Is he ignorant? Wouldn’t somebody in his Administration whisper to him that he is peddling nonsense?

The answer is that to President Obama this is still not fair because he is a Marxist. To a Marxist, the fact that the top 1% earn more income than the bottom 99% is not fair, no matter how they earn it, fairly or not. So it is not fair unless more is taken from the top 1% until they are left only with what they “need,” as in any true communist system. Paying anything less is not their “fair” share. That is the only logical explanation of President Obama’s rhetoric, and it is 100% consistent with his own published background.

Notice that Obama keeps saying that “the rich,” a crass term implying low class social envy, don’t “need” the Bush tax cuts. That is reminiscent of the fundamental Marxist principle, “From each according to his ability, to each according to his need.”

Good tax policy is not guided by “need.” It is guided by what is needed to establish the incentives to maximize economic growth. The middle class, working people and the poor are benefited far more by economic growth than by redistribution. That is shown by the entire 20th century, where the standard of living of American workers increased by more than 7 times, through sustained, rapid economic growth.

But President Obama’s tax policy of increasing all tax rates on savings and investment will work exactly contrary to such economic growth. It is savings and investment which creates jobs and increases productivity and wages. Under capitalism, capital and labor are complementary, not adversarial, exactly contrary to the misunderstanding of Marxists. More capital investment increases the demand for labor, bidding up wages to the level of worker productivity, which is enhanced by the capital investment.

Increasing marginal tax rates on savings and investment, however, will mean less of it, not more. That will mean fewer jobs, and lower wages, just as we have experienced so far under President Obama, with median household incomes (hello middle class) declining by 7.3% (a month’s worth of wages) during his first term, even faster after the recession supposedly ended in 2009. That will only get worse in Obama’s unearned second term, which can only be explained as “democracy failure” analogous to “market failure.”

If the tax increases are limited to those who earn $1 million or more, I don’t know if that alone will be enough to create a recession, as I am certain would be the result with Obama’s original policy of targeting couples making over $250,000 a year, and singles making over $200,000.

But there is so much in the Obama economic program that is contractionary. His second term promises enormous new regulatory burdens and barriers. The EPA is shutting down the coal industry, and Interior will join with it to sharply constrain oil production further, despite Obama’s duplicitous campaign rhetoric taking credit for the production produced by the policies and efforts of others. I expect Obama’s EPA to burden natural gas fracking until it goes the way of the coal industry as well, stealing new found prosperity for many Americans. All of this will sharply raise energy prices, which will be another effective tax on the economy.

Moreover, President Obama has said that a priority in his second term will be global warming, even though global temperatures have not been increasing for 16 years now, and the developing world led by Brazil, Russia, India and China (the BRIC countries), which are contributing to “greenhouse gases” at a much greater accelerating rate than the U.S., have rejected sacrificing any slice of their economies to that ideological phantom. While even the Democrat Congress of Obama’s first term failed to adopt “cap and trade,” EPA is advancing with global warming regulations that will cost the economy trillions in still another effective tax.

Then there are the onrushing regulatory burdens of Obamacare, including the employer mandate, which will require all businesses with 50 employees or more to buy the most expensive health insurance available. That will be an effective tax on employment. As Obamacare forces up the cost of health insurance, that will be still another effective tax increase on all employers already providing health coverage. Hundreds of regulations still in the pipeline under the “Dodd-Frank” legislation are already forcing the financial sector to contract, and threaten the business and consumer credit essential to full recovery.

In addition, few are adequately considering the longer term contractionary effects of the Fed’s current policy mischief. For years now, businesses and investments have been launched all over the country based on the near zero interest rates, and even below zero real rates, that Fed policies have perpetuated, along with the easy free money . When those rates inevitably rise back to normal, most likely after these Fed policies have resparked inflation, the basis for those businesses and investments will be gone, and many if not most will go into liquidation, which will be highly contractionary as well.

However, I am certain in any event that the Obama tax increases will result in less revenue rather than more. Obama has been proposing to increase the capital gains tax rate by 58% on the nation’s job creators, investors and successful small businesses, counting his Obamacare tax increases that take effect on January 1 as well the expiration of the Bush tax cuts. While his misleading talking points say there will be no tax increases for 97% of small businesses, that counts every Schedule C filed for every part time or hobby sole proprietorship, however marginal the earnings. The small businesses that would bear President Obama’s originally proposed tax increases earn 91% of all small business income, and employ 54% of the total private sector U.S. work force, as reported in Investors Business Daily on November 9.

Over the last 45 years, every time capital gains tax rates have been raised, revenues have fallen, and every time they have been cut, revenues have increased. The capital gains rate was raised 4 times from 1968 to 1975, climbing from 25% to 35%. The 25% rate produced real capital gains revenues in 1968 of $40.6 billion in 2000 dollars. By 1975, at the higher rate, capital gains revenues had plummeted to $19.6 billion in constant 2000 dollars, less than half as much.

After the capital gains rate was cut from 35% to 20% from 1978 to 1981, capital gains revenues had tripled by 1986 compared to 1978. Then the capital gains rate was raised by 40% in 1987 to 28%. By 1991, capital gains revenues had collapsed to $34.4 billion, down from $92.9 billion in 1986, in constant 2000 dollars adjusted for inflation.

Obama’s capital gains tax increase next year will reduce capital gains revenues again as well.

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Perhaps some of those presidents actually cared about social justice but don’t try to include Johnson or Obama under that category. Both were focused on maintaining power through control of the lower classes by creating or expanding dependence on government.

Obama did not inherit the worst economy since the 30′s – Carter left Reagan with worse unemployment problems along with spiraling inflation and Reagan was able to do something about in less time and with a congress controlled by the opposing party. That said, you note the year as the last year in which the U

While some of those Presidents may have been primarily focused on social justice, do not attempt to include Johnson or Obama under that category. The prime motivation for both was the acquisition of power through control of the lower classes through government dependence.

Moreover, Obama did not inherit the worst economy since the 30’s. Carter left Reagan much worse unemployment and spiraling inflation. You note 2006 as the last year in which the Federal government received 19% of GDP in revenue. You neglect to mention that was the year the deficit dropped to about $160 billion (despite “unfunded wars, tax cuts and Part D of Medicare, enacted by W Bush”) and it was the year Democrats took over Congress. Thereafter, the “structural deficit of nearly $1.2 trillions a year” is the result of policies created by Democrats and defended by their Congress (including then Senator Obama). The mortgage crisis is a direct result of the Democrats and reform of the offending policies and quasi-government agencies that created the problem was actively opposed by that party. If Obama did not want to the economy to be in the dumpster when he took office, he could have voted differently.

As for the unearned re-election, the term does not dispute that millions of people made a terrible decision last November – it simply states the fact that Obama did nothing credible to deserve the country’s support. Lastly, the robber barons of Pennsylvania Avenue are hardly paragons of virtue and simple logic. However, they do make those of Wall Street look like petty thieves.

1. Do you subscribe to the “47% of Dependent Americans” of Mitt Romney? If most Republicans believe in it, then they will NEVER get to the White House in the future.

All contestants to public office have a sense of acquiring POWER.

2. I disagree that Carter left behind the worst economy. Please compare and contrast the 1980s and 2008. Please have some sense of fairness in your evaluation.

3. Now you people talk a lot about Deficit and Debt when the economy is very soft (reason being the derivatives market collapse and meltdown of Lehman Bros etc). Where were you when W Bush enacted all the unfunded wars, tax cuts and Part D?

4. You seem to comment on the “terrible decision of ” the millions of people! Do you really believe in Democracy and One Person One Vote Doctrine at all?

People are very well informed, and they can see through the BS the Republicans are peddling!

Yamaka, tax revenues are so far down as a percent of GDP because Obamanomics forestalled any real recovery from the recession, with the worst recovery from a recession since the Great Depression, a point widely recognized and conceded.

Yamaka, To see why Mr. Dalton is correct, and Carter did leave Reagan with a worse economy, you need to compare the 1970s with 2008, not the 1980s. Compare the 1980s with the Obama term to see why his second term was unearned.

“Obamanomics” did not levy any new tax until 2014 for Obamacare! That too just about $100 billions a year, as per the CBO. This is to medically insure about 30 million citizens who are left out in the cold without health insurance.

The reason Obama collected the least amount of federal tax is the economy undergoes a massive structural change internally due largely to the technological innovations, global trade and the risk averse instinct of the private sector, post Lehman collapse.

Peter, please get out of the “Republican Bubble” to see the real world. Lol.

Yes, I agree we need to compare the years of Carter 1976 -1980 to the 2000 to 2008 of W Bush. Please recall Lehman was standing strong during Carter’s time and is vanished at the end of W Bush! Oil shock was the primary reason for Carter’s problem, while the criminal negligence of W Bush brought on us the 9/11/2001 and the reckless behavior of Wall Street brought on us the financial tsunami of 2008.

Peter, stop re-writing the known history in order to make a weak argument!

So much nonsense and so little time – Obamanomics crippled the recovery by excessive spending, excessive debt, insanely incomprehensible overregulation, perpetuating businesses that should have been allowed to die their natural deaths, poor overall leadership and the looming threat of higher taxes – you know, the ones that are going into effect in his second term.

Your bizarre understanding of economics is amusing but your attempt to re-write history is offensive. 9/11 is a direct result of feckless foreign policy and an inept dismantling of US intelligence and law enforcement policy by Bill Clinton. It is disgusting how your ilk try to say Obama is not responsible for an economy he has run for 4 years but Bush was supposed to fix a broken intelligence community overnight. 9/11 was put into place under Clinton’s watch, was enabled by his downsizing of the CIA and instituting unnecessary and immoral barriers between law enforcement and intelligence agencies, was planned by a man that Clinton had multiple opportunities to capture or kill, and it was his carry-over team, particularly Richard Clark, who failed to provide any actionable warnings about the attack. That blood is on the hands of the left.